Factory overhead, also called manufacturing overhead, manufacturing overhead costs (MOH cost), work overhead, or factory burden in
American English
American English, sometimes called United States English or U.S. English, is the set of variety (linguistics), varieties of the English language native to the United States. English is the Languages of the United States, most widely spoken lang ...
, is the total cost involved in operating all production facilities of a
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of the
secondary sector of the economy. The term may refer ...
business that cannot be traced directly to a
product.
It generally applies to indirect labor and
indirect cost. Overhead also includes all
costs involved in manufacturing with the exception of the cost of
raw materials. Examples include supplies, indirect materials such as lubricants, indirect manufacturing labor such as plant maintenance and cleaning labor, plant rent, plant insurance,
property tax
A property tax (whose rate is expressed as a percentage or per mille, also called ''millage'') is an ad valorem tax on the value of a property.In the OECD classification scheme, tax on property includes "taxes on immovable property or Wealth t ...
es on the plant, plant depreciation, and the compensation of plant managers.
Items of the overhead
Manufacturing overhead includes other costs in manufacturing that are neither direct materials costs nor direct labor costs. It might also be referred as the factory burden or production overhead. Its value is essential for determining the cost of products to be manufactured.
This category of costs includes expenses like:
# Electricity for the equipment and lighting.
# Cleaning costs of equipment.
# Material handling like forklifts
# Maintenance of the equipment.
# Wages of employees in the factory who for example work on record keeping and inspection of materials.
# Computing the operation of the process of manufacturing the product.
# Insurance
# Safety and quality cost.
# Plant Repairs
References
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Further reading
* Cornerstones of Managerial Accounting 4th edition-Chapter 2: Depreciation on plant buildings and equipment, janitorial and maintenance labor, plant supervision, materials handling, power for plant utilities, and plant property taxes.
* Management accounting by Eldon, Wiley, 1979 - Business & Economics
Managerial Accounting 4th Edition, Tools for Business Decision Making
Management accounting